Dodd Pushes Bank Overdraft Reform

U.S. Sen. Christopher Dodd pressed his financial services reform agenda in Hartford Friday, disclosing more details about his proposed legislation to rein in bank overdraft charges.

Dodd said he will push for legislation even though major banks — including Bank of America, Connecticut's largest bank — this week eased up on their policies that penalize customers who overdraw from deposit accounts using checks, debit cards or ATM cards.

"They would never have done what they have, in my opinion, had I not succeeded with the credit card bill," Dodd said, after a news conference at his downtown Hartford office. "The only thing that motivated them to change their policies is that there is legislation coming and they wanted to stay in front of it."

If legislation isn't passed, there is the danger that the banks will slip back into overdraft policies that Dodd says are abusive and are expected to earn banks nearly $40 billion this year, he said.

Bank of America has said it made the change because of concerns from its customers, hit hard by the recession, and not because of the proposed legislation.

Dodd's proposal for curbing overdraft fees includes:

• Prohibiting the practice of ordering account withdrawals starting with the largest, which maximizes the number of overdrafts on an account.

• Requiring prompt notice when a customer overdraws an account, perhaps by cellphone or e-mail. Currently, those notices come through the mail, and can be delivered after charges start piling up.

Dodd had previously discussed another key provision of his proposal: allowing customers to choose whether they want overdraft protection.

In recent years, automatic enrollment in protection programs has come under fire from consumer advocates, particularly as it relates to debit card transactions. The protection allows them to overdraw, but customers get charged a flat fee — typically $20 to $30, according to the Federal Reserve — for each over-the-limit transaction.

That is too high a price for small transactions and amounts to an expensive loan, critics say.

Dodd says consumers should be able to opt into a protection program or have their debit or ATM transaction rejected.

At Friday's news conference, Dodd emphasized that consumers have to be good stewards of their bank accounts and how they spend their money. But overdraft charges, which have now hit a median of $26 nationally, have become onerous, especially when accounts are overdrawn by small amounts.

Bank of America addressed that issue this week when it announced it would no longer charge overdraft fees if a customer's account is overdrawn by less than $10 a day.

Dodd acknowledged that banks may try to make up lost overdraft revenue some other way, much like credit card companies faced with new restrictions are now doing by raising interest rates, switching fixed rates to variable rates and cutting credit lines.

"If I said, 'I'm sorry I can't do anything about this because they might do something else,'" Dodd said, "that would be an awful abdication."

At the news conference, Dodd also said he will propose a bill, as others have, to extend the first-time home buyer tax credit another six months. The credit expires Nov. 30.